Korean Ties May Thaw After Election Even With North’s Rocket

North Korean dictator Kim Jong Un can
launch a rocket this month in defiance of international
opprobrium and still look forward to better relations with South
Korea’s next president.

The candidates in the Dec. 19 election to head Asia’s
fourth-biggest economy are outdoing each other in pledges to re-
engage with the totalitarian state, undeterred by Kim’s plan to
fire a rocket as soon as next week. The ruling New Frontier
Party’s Park Geun Hye vows to help the regime join global
organizations and opposition nominee Moon Jae In promises to
boost tourism and invite North Koreans to his inauguration.

Ties have soured during the five-year term of outgoing
President Lee Myung Bak, highlighted by North Korean missile and
atomic bomb tests and two clashes in 2010 that killed 50 South
Koreans. Mending fences may offer companies in the South
expanded access to a joint industrial zone while bringing aid to
Kim, whose economy is one-fortieth the size of his rival.

“Voters know that inter-Korean relations are multifaceted
and complex, and don’t hinge solely on the launch of one
rocket,” said Yang Moo Jin, a professor at the University of
North Korean Studies in Seoul. “The election allows Kim to do
pretty much whatever he wants and still have a new South Korean
counterpart that’s willing to talk.”

Lee, whose five-year term ends in February, abandoned his
predecessor’s “Sunshine Policy” that encouraged cross-border
tourism and family reunions, saying it rewarded North Korean
provocative behavior. His popularity has fallen by more than
half since taking office, and Park has repudiated his stance.

Park’s Lead

North Korea announced on Dec. 1 that it will fire a long-
range rocket sometime between 7 a.m. and noon during a Dec.
10-22 liftoff window, to put a satellite into orbit. South Korea
and the U.S. are negotiating with Japan and United Nations
Security Council permanent member states China and Russia on
options for new “proportional” sanctions against the North if
it goes ahead with the launch, South Korean Foreign Minister Kim Sung Hwan told lawmakers today in Seoul.

Support for Park rose 1.9 percentage points to 49.7 percent
since North Korea announced its launch plan on Dec. 1, while
Democratic United Party nominee Moon’s rating fell 1 percentage
point to 42.1 percent, according to a daily poll published today
by Realmeter and JTBC, a television affiliate of the JoongAng
Ilbo newspaper. The Dec. 4-5 survey of 1,500 people had a 2.5
percentage point margin of error.

Geopolitical Risks

Reducing tensions may benefit South Korea’s investment
climate. The country’s sovereign debt rating was raised by
Standard & Poor’s in September on reduced geopolitical risk due
to a “smooth” leadership transition after Kim last year
succeeded his late father Kim Jong Il. The upgrade followed
similar moves by Fitch Ratings and Moody’s Investors Service and
sent the won to a four-month high against the dollar.

The South Korean currency is up 6.6 percent this year, as
is the benchmark Kospi (KOSPI) stock index.

“The majority view is that the current policy is too hard-
line, which is why even Park is running to improve inter-Korean
relations,” said John Delury, a political science professor at
Yonsei University in Seoul.

Moon and Park both called on North Korea to halt plans to
fire a rocket with a satellite sometime between Dec. 10-22. At
the same time, neither has backed away from campaign promises to
meet with Kim.

Kim’s Inheritance

The younger Kim, believed to be under 30, inherited an
impoverished country that has more than 250 long-range artillery
installations along the world’s most fortified border. South and
North Korea technically remain at war after their 1950-1953
conflict ended without a peace treaty.

“I am willing to participate in summit talks,” Park, 60,
said in a Dec. 5 debate with Moon, 59. “I will provide
humanitarian support independent of political developments. I
will also expand economic cooperation and social, cultural
exchange.”

Moon at the debate called for expanding the joint Gaeseong
industrial zone north of the border and reviving tourism at
North Korea’s Mount Geumgang, a luxury resort that was closed
after soldiers shot and killed a South Korean guest.

More than 120 South Korean companies including watchmaker
Romanson Co. (026040) and underwear manufacturer Good People Co. (033340) employ
about 50,000 North Korean workers at Gaeseong. Production at the
complex rose 17 percent in 2011 to $1.7 billion, accounting for
99 percent of bilateral trade, according to South Korea’s
Unification Ministry.

Joint Success

North Korea is working to increase foreign investment and
Kim has made development a priority to boost an economy burdened
by international sanctions imposed over its nuclear program. The
regime launched a rocket in April that exploded shortly after
takeoff, costing it a U.S. deal to provide food assistance for a
population where two-thirds suffer from chronic malnutrition.

“Whoever wins, the new government will aggressively launch
projects of economic cooperation as soon as it get settled
because that’s the one area where quick results can be
highlighted,” said Cho Bong Hyun, an economist at the Seoul-
based IBK Economic Research Institute. “Inter-Korean relations
have been so bad that they can only get better.”